Every domain is a subdomain of something. Even the so-called "Top Level Domains" of com, net, org, etc., are subdomains of the "." domain.
So www.jezebel.dreamhost.com and www.worm.dreamhost.com and www.io.dreamhost.com are all treated as different websites; you have to set up a favicon.ico for each website.
Since www.yourdomain.com and yourdomain.com point to the same directory, setting up favicon for the one sets it up for the other.